Will Issues at the Port of Melbourne Impact on Australia's Economy?

If you were to glance at the individual economies that exist in the world, you'd notice that not all of them have been created equal. This rule not only applies to size, either, as there are different types of economy that rely on alternative markets, industries and asset classes.

As of 2013, for example, the UK economy was heavily reliant on financial services, with 79% of the nation's GDP being generated by service sectors. Similarly, Australia's economy relies heavily on the shipment of natural resources and commodities, which is why the nation enjoyed such considerable growth on the back of a global commodity boom last spring.

An over-reliance on a particular asset class or financial market can be detrimental to an economy, however, and according to recent reports Australia could be about to suffer due to logistical restrictions at the iconic Port of Melbourne. Below, we'll explore this in further detail and asj what it means for the Australian commodity as a whole.

What is the Problem with the Port of Melbourne?

Those with their finger on the pulse of the Australian economy will know that Sydney's Port Botany surpassed the Port of Melbourne as the chief destination for container trade in the financial year ending April 2017. Interestingly, Melbourne's share of this market fell from 36% to 33% during this period, while Sydney's increased incrementally to 34%.

This is an eye-catching headline, while it also says more about the restrictions surrounding the Port of Melbourne than it does about Sydney's growth as an import and export destination. More specifically, shipping and transportation groups say that the port's size restrictions make it increasingly unable to accommodate the larger container ships used in the modern age, citing the 50.1 metre clearance height at high tide of the West Gate Bridge as one of the primary issues.

The depth and width of the Yarra River shipping channel is also a cause for concern, while experts have suggested that the government's failure to resolve these constraints has now put Victoria at risk of losing valuable import and export trade. Not all of this trade will be lost to Sydney or other Australian reports, however, with some claiming that New Zealand could also increase its own market share at the expense of Melbourne and the Australian economy as a whole.

How will the Australian Economy Suffer?

In the near-term, it's almost certain that Melbourne will need to limit the size of ships that it accepts into the port, which could force shipping lines to seek out alternative routes and trade destinations. Remember, the use of larger container ships enables suppliers to reduce transportation costs on a huge scale, so the Port of Melbourne's inability to accommodate these vessels could ultimately cost them dearly while also constraining the Australian economy as a whole.

Melbourne will certainly lose more of its market share in the months ahead, but the question that remains is how much trade will be lost to Sydney and Brisbane and how much to competing nations such as New Zealand?

If this issue also impacts negatively on the supply and demand of certain commodities, investors could see their own fortunes suffer. After all, trade restrictions could impact the Australian Dollar, the aud/usd fx markets, or send the value of certain commodities plummeting, while the intrinsic link between the commodity markets and Australia's GDP may also have a negative impact on foreign exchange trading.

This will certainly be an interesting space to watch in the future, as the Australian government looks to mitigate risk and maintain Melbourne's competitiveness as a port city.